Utilities Are Localized Monopolies

As a technology worker I suppose that I am exposed to the issues of utilities and localized monopolies much more often than the average person is. I am always surprised when I come across someone who is not aware that their utilities and infrastructure services are, by their very definition, monopolies within their local area. Utilities of this nature include services such as roads, water, sewer, electric, gas, broadcast television, radio, traditional telephone and cable services. Each of these service, by its nature, can only be provided once to each normal residential address. There are physical limitation making it impossible or impractical to provision competing services and in each case doing so would cause major disruptions, increase cost, etc.

Roads are possibly the easiest to visualize since we see them every day. For most people there is only one road that passes near enough to their property, assuming that they own or rent property, to allow direct access. Even if another road exists nearby it is often not accessible without crossing other people’s property lines to reach it. For the average person having a “backup” access road to their home is simply not possible.

More importantly than the theoretical ability to access a second road (since we could mandate that all houses be built with a road on either side – at massive additional cost financially and environmentally) is the improbability that we could manage a system where one company would own and manage one set of roads and another would own and manage the second set of roads so that every resident would have the choice of whose roads to drive on. At best the road directly at your driveway would be clear but as soon as you reached an intersection there would be a dispute as to whose responsibility the intersection was. Each family would need to choose which road system they were going to access and pay road maintenance fees for repairs, snow removal, insurance, etc. just for the one that they use. That company would then need to pay access fees to the alternate road company so that you would have the right to visit friends across town who opted to use the primary road carrier – the one that you didn’t choose. At some point you will need to switch onto their roads to get into your friend’s driveway. Remember that the choice is to which road system you can access. Just because the road is next to your house doesn’t mean that you are allowed onto it – it is simply the competitor’s product.

The same situation would be true of water. What if you want a company to compete with your town’s water supply. Perhaps they will offer cleaner water at a premium price or cheaper water but that is only good enough for washing the car. Sounds like a great deal. But now a new set of water mains has to be dug under your entire city. That isn’t going to make people happy. And a second water treatment facility will have to be built somewhere in town. And every yard, yes even yours, will have to be dug up to allow the water hookup to be brought to your house. And if you think that the price of water will go down because of competition keep in mind that all of this infrastructure cost money and now each water treatment facility only processes half as much water meaning it takes more people and more equipment to process the same amount of water. Prices have to go up. Inconvenient and more expensive.

It is because of these factors that you have never heard of a village offering competitive road or water services – imagine the disaster with competing sewage systems! Villages, towns and cities almost ubiquitously oversee all key utilities of this nature because it is in everyone’s interest that everyone have clean, safe water, efficient sewers and safe roads. It keeps the population healthy and allows everyone to go to work. These utilities are so obvious and have been around for so long that every village knows exactly how to perform these services and how to do them very efficiently.

We begin to see problems arise when we start looking at core infrastructure services that have only existed for the last century or so. Principally this means electrical, gas, telephone and cable. These services, because they required additional capital investments, connect to additional infrastructure outside of the village or town and require greater technical knowledge have almost purely been left to the purview of private industry generally operating under strict regulations.

Electrical power supply is the oldest of the “new” infrastructure services and, as such, has the most potential to be taken over and managed by the municipality itself. It is not uncommon to find small towns and jurisdictions that have decided to take their power needs “in house” and run their own power plants and maintain their own infrastructure. In many cases this proves to be very beneficial to the local residents as overall costs are often lower and service is local and friendly instead of being handled by some far away corporation. It can also generate local jobs that are stable and reliable. Local power plants are generally not able to take advantage of hydroelectric or nuclear power, however, so they are not always the best option. But the potential is there and with new wind and solar technologies today there could be more potential for this in the future. We must be aware, though, that one of the cost saving measures in small town power management often comes from having no research and development whatsoever which will produce short term gains at long term expense. Large electric companies spend a lot of money making sure that they power is safe, cheap and reliable for a long time to come.

As we move towards newer and more “technology” focused services we move farther and farther away from a general understanding from the overall populace and we also move farther away from municipalities feeling that they should bring these services “in house.” This feeling, I believe, comes from three primary issues. The first is that telephone and cable are massively more complex than even electric generation which causes municipalities to need more extensively trained, and therefore paid, staff for a rather small-scale deployment. The second is that these services are newer and have a greater sense of being “optional” rather than “required” services like water, sewer or electric. The third is that these system inherently must connect to the outside world or they have no meaning. Other key services can, under ideal circumstances, exist completely within the borders of the jurisdiction and operate quite satisfactorily.

Telephone and cable services fall prey to the same issues affecting our other infrastructure components. Even though it is feasible to bring two sets of telephones lines and two sets of cable lines through a town this results in a conflict for right-of-way access which is a complex issue, it creates an unsightly mess in many areas and it decreases revenue potential for all businesses involved which is fine in urban areas but would result in a complete loss of service in rural areas.

The current telephony monopoly situation originated when AT&T was given an almost total monopoly but was required to provide the same service at approximately the same cost to its urban and rural customers. Urban customers in areas with high telephone termination density would pay slightly more than the service would be expected to cost and rural customers would pay the same. But AT&T took a loss on rural telephone terminations under this system making up the cost in their guaranteed urban profit centers. If telephone providers were forced to compete in the urban areas they would be under no obligation to provide service to “profit loss” centers and would not choose to do so.

Some municipalities have decided to compete with the incumbent local carriers and have provided their own telephone and cable services. These services generally are technological dinosaurs, however, and roll out at very high cost with very few features. Few local regions have the capability to supply these services at a level competitive with large technology companies that service the major markets. This situation is likely to change over time as the technologies involved become increasingly commonplace and as convergence removes the need for as many overlapping services.

In today’s Internet dominated communications world we actually have arrived at a situation with far more choice than we have had for the past several generations. Because both the traditional telephone infrastructure as well as the cable television infrastructures and even to some degree the cellular phone infrastructure can carry Internet access to our homes we have, for the first time, have the ability to choose between competitors for a core infrastructure service. These competition is simply the result of redundant legacy technologies being replaced with a converged modern technology. If the Internet had come first there would never have been two separate telephone and cable television systems and all of those services would have been delivered over a single Internet access line and people today would be furious at the thought of stringing another entire set of cables up in the sky overhead. But those decisions were made long ago in a different era.

This competition of services has proved to be very good for us today and not only gives us the opportunity to choose and change Internet access suppliers but also to purchase duplicate services providing ourselves with a degree of reliability that did not exist for either service individually. In some rare areas Internet access is even available or has been proposed to be made available through the electrical power distribution system providing a third vector for access to our homes. Multi-service Internet access is now commonplace enough that major vendors such as Netgear now sell home router/firewall units that are designed to aggregate service across dual connections to provide better speed and reliability simply and automatically.

So the unfortunate situation that we find ourselves in is that there is no good answer for infrastructure services. We must either submit to socialized control of these services by municipalities and regional authorities which leaves us with generally lower prices as the cost of development, advancement and options or we can allow private corporations to run these utilities where we are “forced” to hand over monopolistic controls in the hopes that regulations will keep prices and services in line. The risk of either approach, of course, is that our access to critical services and, in some cases, information and our view of the outside world is controlled by agencies and companies for whom there is no true competition.

As technology service become more commonplace I believe that we have a great opportunity for convergence and socialization again. As some rare regions have done, telephone and cable infrastructure can be brought “in house” through heavy investment in fiber optic networking allowing all services of this nature to be delivered with higher service levels, greater safety and at lower long-term cost through a single, small cable. Municipalities that choose to go this integrated services route will find that they can leverage scale for cost effective Internet access through a few competitive long-haul carriers, allow residents to choose “telephone” services from Internet VoIP carriers that must compete on price and service, lower the power requirements providing additional cost savings and safety and greatly reduce the number of cables that must be strung through their regions.

For a relatively small investment a village, for example, could make Gigabit speed fiber optic connections available to every single resident of the village for a fixed fee and allow competing “cable television” companies to house their distribution systems within the village’s cabling hub giving residents the right to choose which television provider to choose or to choose none at all. Telephone service could be purchased from a large number of carriers or residents could build their own telephony systems and even bypass those competitive carriers. Only the core Internet access service – the base on which all else is derived – would be “owned” and management by the community providing a minimum amount of infrastructure for a maximum amount of services.